360 Capital REIT Forecasts 7.6% Fully Tax-Deferred Distribution Yield for FY26

FY25 Financial Performance and Portfolio Strength

360 Capital REIT (ASX, TOT) closed FY25 with a statutory net profit of $1.3 million, a notable turnaround from the prior year’s loss of $21.9 million. Operating profit rose 24.8% to $5.2 million, reflecting improved cost management and reduced finance expenses following debt repayments. Despite a slight dip in net tangible assets per security to $0.58, the REIT’s portfolio remains robust, valued at approximately $201 million with a weighted average lease expiry (WALE) of 6.4 years and occupancy steady at 93.4%.

The portfolio’s modern assets average just 4.7 years in building age and boast strong environmental credentials, with an average NABERS energy rating of 4.8 stars. Key properties include 510 Church Street in Cremorne, Victoria, and 38 Sydney Avenue in Canberra, both featuring long-term leases to government and publicly listed tenants, which underpin stable cash flows and rental growth through fixed or CPI-linked reviews.

Distribution Yield and Capital Structure

Looking ahead, TOT forecasts a fully franked distribution of 3.0 cents per security for FY25, with FY26 guidance targeting a 7.6% yield that is 100% tax deferred. This unique tax treatment is supported by a franking credit balance of $5 million, equivalent to nearly two years of fully franked distributions, enhancing the appeal to income-focused investors.

The REIT maintains a conservative gearing ratio of 35.5%, comfortably within its 30-40% target range, supported by a $80 million debt facility with a floating interest rate strategy. Management anticipates potential interest rate declines over the next 18 months, which could further improve financing costs and cash flow.

Leasing and Market Outlook

Leasing remains a key focus, with approximately 6.6% of the portfolio currently vacant at 510 Church Street, Cremorne. The REIT is actively marketing these spaces, which benefit from recent speculative fitouts, though market conditions remain competitive with high vacancy and tenant incentives prevalent across CBD and fringe office markets.

Notably, tenant Dentsu has exercised a lease break on part of their space effective August 2026, but will continue to occupy other floors until 2029. Management is preparing for this upcoming vacancy with a proactive leasing strategy. Meanwhile, 38 Sydney Avenue has secured new leases with government tenants, extending WALE and reinforcing income stability.

Strategic Growth and Market Position

360 Capital REIT’s management team, with significant skin in the game owning 46% of the REIT, is pursuing a responsible growth strategy. This includes maintaining capital discipline, exploring merger and acquisition opportunities, and enhancing portfolio diversification to improve earnings and trading performance. The REIT currently trades at a 31.9% discount to NTA, a gap management aims to narrow as market confidence in the REIT sector recovers.

With a market capitalization of approximately $85.5 million, TOT sits below the average peer size but offers a compelling yield profile and tax advantages. The coming year will be critical to watch how leasing outcomes, interest rate movements, and strategic initiatives translate into improved investor returns and market valuation.